A demand shock is defined as:

A demand shock is defined as:

• A. An event that shifts the short-run aggregate supply curve.
• B. An event that shifts the long-run aggregate supply curve.
• C. An event that causes a movement along the aggregate demand curve, not a shift.
• D. An event that shifts the aggregate demand curve.

Answer: (D)

A demand shock is an event that shifts the aggregate demand curve. The aggregate demand curve shows total spending on goods and services at each price level. When a demand-shaping event occurs, it changes the components of spending—consumption, investment, government purchases, and net exports—independently of the price level, so the whole curve moves either to the right (more demand) or to the left (less demand). For example, a sudden tax cut or a rise in consumer/business confidence tends to increase spending and shifts AD outward, while a financial crisis or pessimistic expectations reduce spending and shift AD inward. This is different from a movement along the curve, which would happen if the price level changes but the underlying determinants of spending stay the same.

A demand shock is an event that shifts the aggregate demand curve. The aggregate demand curve shows total spending on goods and services at each price level. When a demand-shaping event occurs, it changes the components of spending—consumption, investment, government purchases, and net exports—independently of the price level, so the whole curve moves either to the right (more demand) or to the left (less demand). For example, a sudden tax cut or a rise in consumer/business confidence tends to increase spending and shifts AD outward, while a financial crisis or pessimistic expectations reduce spending and shift AD inward. This is different from a movement along the curve, which would happen if the price level changes but the underlying determinants of spending stay the same.